The recently ended quarter wasn’t as bad as some on Wall Street had feared for Western Digital Corp., the top maker of disk drives.
Lake Forest-based Western Digital faced concerns about a slowdown in the June quarter amid flagging demand for drives that go into computers, servers and consumer electronics.
From April to June, Western Digital’s shares gave up a quarter of their value with a recent market value of $7.2 billion. A slew of analysts cut their price targets on the stock as well as their estimates for Western Digital’s profits.
With the quarter now wrapped up, Western Digital fared better than expected, according to analyst Richard Kugele of Needham & Co. in Boston.
The June quarter was “fairly typical and far from the disaster feared,” he said.
Limited price cuts and production cutbacks helped Western Digital and key rival Seagate Technology LLC of Scotts Valley avoid disaster in a sector known for booms and busts.
Drive makers typically see less demand in April and May. The difference this time was Europe’s debt crisis, which made consumers there hesitant and Western Digital’s products more expensive with a decline in the euro.
The company startled investors when it said early in the quarter it would pull back on its “build plan”—a schedule of how many drives it plans to produce during a quarter.
Western Digital cut its production plan by 10 million drives and lowered some prices.
It later followed up with a letter to customers saying it would hold steady on prices, in a bid to prod buying by those holding out for more cuts.
“During the June quarter, the drive industry has displayed extremely rational behavior,” Kugele said.
Still, the quarter turned out differently than what analysts were expecting.
In April, Western Digital forecast profits of $320 million to $343 million for the recently ended quarter, nearly double what it reported a year earlier.
Sales were forecast at $2.48 billion to $2.58 billion, up 30% or more from a year earlier.
Kugele and other analysts now are looking for Western Digital to report results “at or below the low end of guidance.”
Late last month, Kugele revised his outlook below Western Digital’s April forecast but said it’s likely a “worst-case scenario.”
Kugele now forecasts Western Digital will see June quarter profits of $307 million, down from a previous estimate of $337 million. He’s looking for sales of $2.54 billion, down from $2.55 billion.
On average, analysts are expecting Western Digital to report profits of $323 million, up 85% from a year earlier. Sales are pegged at $2.49 billion, up 29%.
Few expect Western Digital to exceed expectations.
“We are unlikely to see any upside in the June quarter,” said Kaushik Roy, an analyst at Wedbush Securities Inc. in San Francisco.
Western Digital’s stock is down about 35% since the start of the year. Seagate’s shares are off 30% for the same period on a market value of about $6 billion.
The rest of 2010 should be better, according to analysts.
“Western Digital is well-positioned to begin to climb higher for the second half,” Kugele said.
The second half of the year typically is better in terms of disk drive sales with a big back-to-school push and then the holidays, said Arun Sharma, an analyst at UBS Securities LLC in New York.
“Despite June’s results likely being a bit of a disappointment, we believe earnings could potentially be a positive catalyst (for stocks),” Sharma said in a research note.
Western Digital surpassed Seagate in market share for drives for the first time during the March quarter, shipping 51.1 million drives versus Seagate’s 50.3 million.
The top spot likely is up for grabs with the tumult of the June quarter, according to Kugele.
“It will be very close in terms of market share,” he said. “It may be separated by 100,000 units. They will be neck and neck, at least for this quarter.”
